diff --git a/changelog.d/dependent-magi-filing-requirement.fixed.md b/changelog.d/dependent-magi-filing-requirement.fixed.md
new file mode 100644
index 00000000000..d233d1b661b
--- /dev/null
+++ b/changelog.d/dependent-magi-filing-requirement.fixed.md
@@ -0,0 +1 @@
+Count a dependent's modified AGI in premium tax credit and Medicaid/CHIP household income only when the dependent is required to file, and keep each person's Social Security in their own MAGI, so a child's survivor benefits or tax-exempt interest no longer raise household income unless the child must file.
diff --git a/policyengine_us/parameters/gov/hhs/medicaid/income/modification.yaml b/policyengine_us/parameters/gov/hhs/medicaid/income/modification.yaml
index 24c48d75830..73efc6a434a 100644
--- a/policyengine_us/parameters/gov/hhs/medicaid/income/modification.yaml
+++ b/policyengine_us/parameters/gov/hhs/medicaid/income/modification.yaml
@@ -4,7 +4,8 @@ values:
     # Form 2555 lines 45 and 50 (Form 8962 Worksheet 1-1 line 3).
     - section_911_excluded_income
     - tax_exempt_interest_income
-    - tax_exempt_social_security
+    # Each person's own benefits, so a dependent's stay with the dependent.
+    - tax_exempt_social_security_person
 metadata:
   unit: list
   label: Medicaid/CHIP/ACA-related MAGI additions over AGI
diff --git a/policyengine_us/tests/core/test_dependent_magi_household_income_invariants.py b/policyengine_us/tests/core/test_dependent_magi_household_income_invariants.py
new file mode 100644
index 00000000000..8946001133a
--- /dev/null
+++ b/policyengine_us/tests/core/test_dependent_magi_household_income_invariants.py
@@ -0,0 +1,388 @@
+"""Invariants for dependents' income in ACA and Medicaid household income.
+
+Household income counts another member's modified AGI only if that member is
+required to file a return (26 CFR 1.36B-1(e)(1)(ii); 42 CFR 435.603(d)(2)).
+So `medicaid_magi`, which `aca_magi` adds, is the head's and spouse's modified
+AGI plus the whole modified AGI of each tax unit dependent who must file, and
+each person's Social Security is their own (`tax_exempt_social_security_person`).
+
+Hypothesis draws batches of tax units (single, head of household, joint with
+and without dependents) whose members have wages, taxable and tax-exempt
+interest, and Social Security, and a seeded population of 200 such units adds
+breadth. Dependents are children and disabled adult children, with benefits up
+to $60,000 so that some are taxable on the dependent's own return. Each batch
+runs as one vectorized simulation twice: as drawn, and with every dependent's
+tax-exempt interest and Social Security set to zero. For every tax unit:
+
+1. Differential: `medicaid_magi` equals an independent numpy computation of
+   Form 8962 lines 2a, 2b and 3: the return's AGI plus the filers' tax-exempt
+   interest and untaxed benefits, plus, for each dependent required to file
+   under IRS Pub. 501 Table 2, their wages, interest, tax-exempt interest and
+   all their benefits, floored at zero. The dependents' taxable benefits (IRC
+   86 on their own income) and filing requirements match the same computation.
+2. Exclusion: where no dependent must file, removing the dependents'
+   tax-exempt interest and benefits leaves `medicaid_magi` unchanged, and it
+   never changes the head's or spouse's `medicaid_magi_person`.
+3. Identities: each person's tax-exempt, filer-taxable and dependent-taxable
+   benefits add up to their benefits; the head's and spouse's tax-exempt
+   benefits add up to `filer_tax_exempt_social_security`; `aca_magi` equals
+   `medicaid_magi`, which is never negative.
+4. Without dependents, `medicaid_magi` equals the previous formula, AGI plus
+   every member's tax-exempt interest plus `tax_exempt_social_security`.
+5. Where everyone in the tax unit follows the tax-filer rules, each member's
+   person-level Medicaid household income equals `medicaid_magi`.
+"""
+
+import numpy as np
+import pytest
+from hypothesis import HealthCheck, given, settings
+from hypothesis import strategies as st
+
+from policyengine_us import Simulation
+
+TOLERANCE = 0.01  # dollars
+
+# IRC 86(c)(1)(A), (c)(2)(A) and (a): statutory, not indexed.
+SS_BASE = 25_000
+SS_ADJUSTED_BASE = 34_000
+
+OUTPUTS = [
+    "adjusted_gross_income",
+    "medicaid_magi",
+    "aca_magi",
+    "tax_unit_taxable_social_security",
+    "tax_exempt_social_security",
+    "filer_tax_exempt_social_security",
+]
+PERSON_OUTPUTS = [
+    "medicaid_person_is_required_to_file",
+    "dependent_taxable_social_security",
+    "taxable_social_security",
+    "tax_exempt_social_security_person",
+    "social_security",
+    "medicaid_magi_person",
+    "medicaid_household_income",
+    "medicaid_uses_non_filer_rules",
+]
+INPUTS = [
+    "employment_income",
+    "taxable_interest_income",
+    "tax_exempt_interest_income",
+]
+
+small = st.one_of(st.just(0.0), st.integers(1, 4_000).map(float))
+wages = st.one_of(st.just(0.0), st.integers(1, 30_000).map(float))
+benefits = st.one_of(st.just(0.0), st.integers(1, 60_000).map(float))
+
+
+@st.composite
+def person_amounts(draw):
+    return {
+        "employment_income": draw(wages),
+        "taxable_interest_income": draw(small),
+        "tax_exempt_interest_income": draw(small),
+        "social_security": draw(benefits),
+    }
+
+
+@st.composite
+def dependents(draw):
+    adult = draw(st.booleans())
+    return {
+        "age": draw(st.integers(19, 40)) if adult else draw(st.integers(1, 17)),
+        "disabled": adult,
+        **draw(person_amounts()),
+    }
+
+
+@st.composite
+def tax_units(draw):
+    kind = draw(st.sampled_from(["single", "hoh", "joint", "joint_dependents"]))
+    n_dependents = draw(st.integers(1, 2)) if kind in ("hoh", "joint_dependents") else 0
+    return {
+        "head": draw(person_amounts()),
+        "spouse": draw(person_amounts()) if kind.startswith("joint") else None,
+        "dependents": [draw(dependents()) for _ in range(n_dependents)],
+    }
+
+
+SEED = 20261011
+
+
+def _seeded_amounts(rng):
+    def some(high, p=0.5):
+        return float(round(rng.uniform(1, high))) if rng.random() < p else 0.0
+
+    return {
+        "employment_income": some(30_000),
+        "taxable_interest_income": some(4_000),
+        "tax_exempt_interest_income": some(4_000),
+        "social_security": some(60_000),
+    }
+
+
+def _seeded_units(n=200):
+    rng = np.random.default_rng(SEED)
+    units = []
+    for _ in range(n):
+        kind = rng.choice(["single", "hoh", "joint", "joint_dependents"])
+        n_dependents = (
+            int(rng.integers(1, 3)) if kind in ("hoh", "joint_dependents") else 0
+        )
+        deps = []
+        for _ in range(n_dependents):
+            adult = bool(rng.random() < 0.3)
+            deps.append(
+                {
+                    "age": int(rng.integers(19, 41) if adult else rng.integers(1, 18)),
+                    "disabled": adult,
+                    **_seeded_amounts(rng),
+                }
+            )
+        units.append(
+            {
+                "head": _seeded_amounts(rng),
+                "spouse": _seeded_amounts(rng) if kind.startswith("joint") else None,
+                "dependents": deps,
+            }
+        )
+    return units
+
+
+def _inputs(amounts, benefit_variable):
+    values = {name: amounts[name] for name in INPUTS}
+    values[benefit_variable] = amounts["social_security"]
+    return values
+
+
+def _situation(units, year, *, zero_dependents_untaxed=False):
+    people = {}
+    groups = {
+        "tax_units": {},
+        "households": {},
+        "marital_units": {},
+        "families": {},
+        "spm_units": {},
+    }
+    for i, u in enumerate(units):
+        head = f"head_{i}"
+        people[head] = {
+            "age": 45,
+            "is_tax_unit_head": True,
+            "is_tax_unit_dependent": False,
+            **_inputs(u["head"], "social_security_retirement"),
+        }
+        members, couple = [head], [head]
+        if u["spouse"] is not None:
+            spouse = f"spouse_{i}"
+            people[spouse] = {
+                "age": 43,
+                "is_tax_unit_spouse": True,
+                "is_tax_unit_dependent": False,
+                **_inputs(u["spouse"], "social_security_retirement"),
+            }
+            members.append(spouse)
+            couple.append(spouse)
+        groups["marital_units"][f"couple_{i}"] = {"members": couple}
+        for j, d in enumerate(u["dependents"]):
+            child = f"dependent_{i}_{j}"
+            values = _inputs(d, "social_security_survivors")
+            if zero_dependents_untaxed:
+                values["tax_exempt_interest_income"] = 0.0
+                values["social_security_survivors"] = 0.0
+            people[child] = {
+                "age": d["age"],
+                "is_disabled": d["disabled"],
+                "is_tax_unit_head": False,
+                "is_tax_unit_spouse": False,
+                "is_tax_unit_dependent": True,
+                **values,
+            }
+            members.append(child)
+            groups["marital_units"][f"single_{i}_{j}"] = {"members": [child]}
+        groups["tax_units"][f"tax_unit_{i}"] = {"members": members}
+        groups["families"][f"family_{i}"] = {"members": members}
+        groups["spm_units"][f"spm_unit_{i}"] = {"members": members}
+        groups["households"][f"household_{i}"] = {
+            "members": members,
+            "state_code": {year: "TX"},
+        }
+    people = {
+        name: {k: {year: v} for k, v in values.items()}
+        for name, values in people.items()
+    }
+    return {"people": people, **groups}
+
+
+def _run(units, year, **kwargs):
+    sim = Simulation(situation=_situation(units, year, **kwargs))
+    out = {
+        name: np.asarray(sim.calculate(name, year), dtype=float)
+        for name in OUTPUTS + PERSON_OUTPUTS
+    }
+    out["unit"] = sim.populations["tax_unit"].members_entity_id
+    out["parameters"] = sim.tax_benefit_system.parameters(f"{year}-01-01")
+    return out
+
+
+def _by_person(units, key):
+    """Person-level input values in member order; key "role" gives a flag
+    for dependents."""
+    rows = []
+    for u in units:
+        rows.append((u["head"], False))
+        if u["spouse"] is not None:
+            rows.append((u["spouse"], False))
+        rows += [(d, True) for d in u["dependents"]]
+    if key == "role":
+        return np.array([dependent for _, dependent in rows])
+    return np.array([amounts[key] for amounts, _ in rows], dtype=float)
+
+
+def _unit_sum(run, values):
+    return np.bincount(run["unit"], weights=values, minlength=len(run["medicaid_magi"]))
+
+
+def _dependent_taxable_benefits(modified_agi, benefits):
+    # IRC 86(a) and (b) on a single dependent's own return.
+    combined = modified_agi + benefits / 2
+    tier_1 = np.minimum(benefits / 2, (combined - SS_BASE) / 2)
+    tier_2 = np.minimum(
+        0.85 * (combined - SS_ADJUSTED_BASE)
+        + np.minimum(benefits / 2, (SS_ADJUSTED_BASE - SS_BASE) / 2),
+        0.85 * benefits,
+    )
+    return np.where(
+        combined < SS_BASE, 0, np.where(combined < SS_ADJUSTED_BASE, tier_1, tier_2)
+    )
+
+
+def _check(units, year):
+    run = _run(units, year)
+    zeroed = _run(units, year, zero_dependents_untaxed=True)
+    dependent = _by_person(units, "role")
+    filer = ~dependent
+    wages_ = _by_person(units, "employment_income")
+    interest = _by_person(units, "taxable_interest_income")
+    exempt_interest = _by_person(units, "tax_exempt_interest_income")
+    benefits_ = _by_person(units, "social_security")
+    np.testing.assert_allclose(run["social_security"], benefits_, atol=TOLERANCE)
+
+    # 1. Differential: Form 8962 lines 2a, 2b and 3 from the inputs.
+    standard = run["parameters"].gov.irs.deductions.standard
+    dependent_amount = standard.dependent.amount
+    earned_addition = standard.dependent.additional_earned_income
+    single_amount = standard.amount["SINGLE"]
+    taxable = _dependent_taxable_benefits(
+        wages_ + interest + exempt_interest, benefits_
+    )
+    gross = wages_ + interest + taxable
+    required = (
+        (interest + taxable > dependent_amount)
+        | (wages_ > single_amount)
+        | (
+            gross
+            > np.minimum(
+                single_amount, np.maximum(dependent_amount, wages_ + earned_addition)
+            )
+        )
+    )
+    np.testing.assert_allclose(
+        run["dependent_taxable_social_security"][dependent],
+        taxable[dependent],
+        atol=TOLERANCE,
+    )
+    np.testing.assert_array_equal(
+        run["medicaid_person_is_required_to_file"][dependent].astype(bool),
+        required[dependent],
+    )
+    filer_magi = (
+        run["adjusted_gross_income"]
+        + _unit_sum(run, filer * (exempt_interest + benefits_))
+        - run["tax_unit_taxable_social_security"]
+    )
+    dependent_magi = wages_ + interest + exempt_interest + benefits_
+    line_2b = _unit_sum(run, (dependent & required) * dependent_magi)
+    expected = np.maximum(0, filer_magi + line_2b)
+    np.testing.assert_allclose(run["medicaid_magi"], expected, atol=TOLERANCE)
+
+    # 2. Exclusion: a dependent who need not file adds nothing, and the
+    # filers' own Medicaid MAGI never holds a dependent's benefits.
+    any_required = _unit_sum(run, (dependent & required).astype(float)) > 0
+    np.testing.assert_allclose(
+        run["medicaid_magi"][~any_required],
+        zeroed["medicaid_magi"][~any_required],
+        atol=TOLERANCE,
+    )
+    np.testing.assert_allclose(
+        run["medicaid_magi_person"][filer],
+        zeroed["medicaid_magi_person"][filer],
+        atol=TOLERANCE,
+    )
+
+    # 3. Identities.
+    np.testing.assert_allclose(
+        run["tax_exempt_social_security_person"]
+        + run["taxable_social_security"]
+        + run["dependent_taxable_social_security"],
+        run["social_security"],
+        atol=TOLERANCE,
+    )
+    np.testing.assert_allclose(
+        _unit_sum(run, filer * run["tax_exempt_social_security_person"]),
+        run["filer_tax_exempt_social_security"],
+        atol=TOLERANCE,
+    )
+    np.testing.assert_allclose(run["aca_magi"], run["medicaid_magi"], atol=TOLERANCE)
+    assert (run["medicaid_magi"] >= 0).all()
+
+    # 4. Without dependents, the previous formula.
+    has_dependent = _unit_sum(run, dependent.astype(float)) > 0
+    previous = np.maximum(
+        0,
+        run["adjusted_gross_income"]
+        + _unit_sum(run, exempt_interest)
+        + run["tax_exempt_social_security"],
+    )
+    np.testing.assert_allclose(
+        run["medicaid_magi"][~has_dependent],
+        previous[~has_dependent],
+        atol=TOLERANCE,
+    )
+
+    # 5. The person-level Medicaid household income agrees with the tax
+    # unit's where every member follows the tax-filer rules.
+    tax_route = _unit_sum(run, run["medicaid_uses_non_filer_rules"]) == 0
+    person_tax_route = tax_route[run["unit"]]
+    np.testing.assert_allclose(
+        run["medicaid_household_income"][person_tax_route],
+        run["medicaid_magi"][run["unit"]][person_tax_route],
+        atol=TOLERANCE,
+    )
+    return has_dependent, any_required, tax_route
+
+
+# A batch's cost is mostly per-variable overhead, so each example is a large
+# batch and there are few examples.
+SETTINGS = dict(
+    max_examples=5,
+    deadline=None,
+    derandomize=True,
+    suppress_health_check=[HealthCheck.too_slow, HealthCheck.data_too_large],
+)
+
+
+@settings(**SETTINGS)
+@given(st.lists(tax_units(), min_size=10, max_size=40))
+def test_dependent_magi_counts_only_when_required_to_file(units):
+    _check(units, 2025)
+
+
+@pytest.mark.parametrize("year", [2025, 2026])
+def test_seeded_population(year):
+    has_dependent, any_required, tax_route = _check(_seeded_units(), year)
+    # The population exercises both branches of each property.
+    assert has_dependent.sum() > 50
+    assert any_required.sum() > 20
+    assert (has_dependent & ~any_required).sum() > 20
+    assert tax_route.sum() > 50
diff --git a/policyengine_us/tests/policy/baseline/gov/aca/eligibility/aca_magi.yaml b/policyengine_us/tests/policy/baseline/gov/aca/eligibility/aca_magi.yaml
index 1a5d780bf1d..74ccb253709 100644
--- a/policyengine_us/tests/policy/baseline/gov/aca/eligibility/aca_magi.yaml
+++ b/policyengine_us/tests/policy/baseline/gov/aca/eligibility/aca_magi.yaml
@@ -41,3 +41,54 @@
     # Form 8962 Worksheet 1-1 line 3 takes Form 2555 lines 45 and 50.
     medicaid_magi: 65_000
     aca_magi: 65_000
+
+- name: 2025 a child's survivor benefits stay out of premium tax credit household income when the child need not file
+  # 26 CFR 1.36B-1(e)(1)(ii): household income counts other family members'
+  # modified AGI only if they are required to file. The child's gross income
+  # is zero, since none of their benefits is taxable.
+  period: 2025
+  input:
+    people:
+      parent:
+        age: 40
+        employment_income: 40_000
+      child:
+        age: 12
+        social_security_survivors: 12_000
+    tax_units:
+      tax_unit:
+        members: [parent, child]
+    households:
+      household:
+        members: [parent, child]
+        state_code: TX
+  output:
+    # Before the fix: 52,000 and 2.54.
+    aca_magi: 40_000
+    # 40,000 / 20,440 (the 2024 poverty line for two), truncated.
+    aca_magi_fraction: 1.95
+
+- name: 2025 a teen who must file adds their modified AGI to premium tax credit household income
+  # Wages of $16,000 are more than $15,750, so the teen must file (IRS Pub.
+  # 501 (2025), Table 2), and Form 8962 line 2b takes their modified AGI.
+  period: 2025
+  input:
+    people:
+      parent:
+        age: 40
+        employment_income: 40_000
+      teen:
+        age: 17
+        employment_income: 16_000
+    tax_units:
+      tax_unit:
+        members: [parent, teen]
+    households:
+      household:
+        members: [parent, teen]
+        state_code: TX
+  output:
+    # Before the fix: 40,000 and 1.95.
+    aca_magi: 56_000
+    # 56,000 / 20,440, truncated.
+    aca_magi_fraction: 2.73
diff --git a/policyengine_us/tests/policy/baseline/gov/hhs/medicaid/income/medicaid_income_level.yaml b/policyengine_us/tests/policy/baseline/gov/hhs/medicaid/income/medicaid_income_level.yaml
index fa51c1a9ad6..d1afb8de500 100644
--- a/policyengine_us/tests/policy/baseline/gov/hhs/medicaid/income/medicaid_income_level.yaml
+++ b/policyengine_us/tests/policy/baseline/gov/hhs/medicaid/income/medicaid_income_level.yaml
@@ -435,3 +435,82 @@
     medicaid_household_income: 148_224.12
   output:
     is_older_child_for_medicaid_fc: false
+
+- name: Case 26, a child's survivor benefits stay with the child, so they leave the parent's Medicaid MAGI and household income.
+  # The child need not file (none of the benefits is taxable, so the child's
+  # gross income is zero), and 42 CFR 435.603(d)(2)(i) excludes their
+  # MAGI-based income. Before the fix, the tax unit's tax-exempt Social
+  # Security, the child's benefits included, was the parent's.
+  period: 2025
+  input:
+    people:
+      person1:
+        age: 40
+        employment_income: 40_000
+        own_children_in_household: 1
+      person2:
+        age: 12
+        social_security_survivors: 12_000
+    tax_units:
+      tax_unit:
+        members: [person1, person2]
+    households:
+      household:
+        members: [person1, person2]
+        state_code: TX
+    families:
+      family:
+        members: [person1, person2]
+    marital_units:
+      marital_unit1:
+        members: [person1]
+      marital_unit2:
+        members: [person2]
+  output:
+    medicaid_person_is_required_to_file: [true, false]
+    tax_exempt_social_security_person: [0, 12_000]
+    medicaid_magi_person: [40_000, 12_000]
+    medicaid_household_income_member: [40_000, 0]
+    medicaid_household_income: [40_000, 40_000]
+    # 40,000 / 21,150, the 2025 poverty guideline for two.
+    medicaid_income_level: [1.891253, 1.891253]
+    tax_unit_medicaid_income_level: 1.891253
+  absolute_error_margin: 0.001
+
+- name: Case 27, a child with survivor benefits who must file adds all their benefits to Medicaid household income.
+  # $2,000 of interest is more than the $1,350 unearned income limit. The
+  # child's MAGI-based income is $2,000 of AGI plus $12,000 of benefits.
+  period: 2025
+  input:
+    people:
+      person1:
+        age: 40
+        employment_income: 40_000
+        own_children_in_household: 1
+      person2:
+        age: 12
+        social_security_survivors: 12_000
+        taxable_interest_income: 2_000
+    tax_units:
+      tax_unit:
+        members: [person1, person2]
+    households:
+      household:
+        members: [person1, person2]
+        state_code: TX
+    families:
+      family:
+        members: [person1, person2]
+    marital_units:
+      marital_unit1:
+        members: [person1]
+      marital_unit2:
+        members: [person2]
+  output:
+    medicaid_person_is_required_to_file: [true, true]
+    medicaid_magi_person: [40_000, 14_000]
+    medicaid_household_income: [54_000, 54_000]
+    # 54,000 / 21,150.
+    medicaid_income_level: [2.553191, 2.553191]
+    tax_unit_medicaid_income_level: 2.553191
+  absolute_error_margin: 0.001
diff --git a/policyengine_us/tests/policy/baseline/gov/hhs/medicaid/income/medicaid_irs_gross_income.yaml b/policyengine_us/tests/policy/baseline/gov/hhs/medicaid/income/medicaid_irs_gross_income.yaml
new file mode 100644
index 00000000000..6c86b73567e
--- /dev/null
+++ b/policyengine_us/tests/policy/baseline/gov/hhs/medicaid/income/medicaid_irs_gross_income.yaml
@@ -0,0 +1,54 @@
+- name: Case 1, a single filer's gross income counts only their taxable benefits.
+  # Combined income is $20,000 of pension plus half of $40,000, $40,000. The
+  # taxable amount is the lesser of 85% of $40,000 or 85% of the $6,000
+  # excess over $34,000 plus the lesser of half the $15,000 excess over
+  # $25,000 ($7,500) or $4,500: $9,600 (IRC 86(a)(2)).
+  period: 2025
+  input:
+    social_security_retirement: 40_000
+    taxable_pension_income: 20_000
+  output:
+    taxable_social_security: 9_600
+    medicaid_irs_gross_income: 29_600
+
+- name: Case 2, a dependent's untaxed benefits are not gross income.
+  period: 2025
+  input:
+    people:
+      parent:
+        age: 40
+        employment_income: 40_000
+      child:
+        age: 12
+        social_security_survivors: 20_000
+    tax_units:
+      tax_unit:
+        members: [parent, child]
+  output:
+    medicaid_irs_gross_income: [40_000, 0]
+    medicaid_person_is_required_to_file: [true, false]
+
+- name: Case 3, a dependent's taxable benefits, figured on their own return, are gross income.
+  # IRS Pub. 915 (2025), "Who is taxed": half of a child's benefits is added
+  # to the child's own income. $15,000 + $18,000 = $33,000 of combined income
+  # makes $4,000 taxable, so gross income is $19,000, more than the $15,450
+  # limit for a dependent with $15,000 of earned income.
+  period: 2025
+  input:
+    people:
+      parent:
+        age: 60
+        employment_income: 40_000
+      adult_child:
+        age: 30
+        is_tax_unit_dependent: true
+        is_tax_unit_spouse: false
+        is_disabled: true
+        employment_income: 15_000
+        social_security_dependents: 36_000
+    tax_units:
+      tax_unit:
+        members: [parent, adult_child]
+  output:
+    medicaid_irs_gross_income: [40_000, 19_000]
+    medicaid_person_is_required_to_file: [true, true]
diff --git a/policyengine_us/tests/policy/baseline/gov/hhs/medicaid/income/medicaid_magi.yaml b/policyengine_us/tests/policy/baseline/gov/hhs/medicaid/income/medicaid_magi.yaml
new file mode 100644
index 00000000000..6af19a96881
--- /dev/null
+++ b/policyengine_us/tests/policy/baseline/gov/hhs/medicaid/income/medicaid_magi.yaml
@@ -0,0 +1,266 @@
+# Household income counts a dependent's modified AGI only when the dependent
+# is required to file a return (26 CFR 1.36B-1(e)(1)(ii); 42 CFR
+# 435.603(d)(2)). In 2025 a single dependent under 65 and not blind must file
+# if unearned income is more than $1,350, earned income is more than $15,750,
+# or gross income is more than the larger of $1,350 or earned income plus
+# $450 (IRS Pub. 501 (2025), Table 2). Social Security counts toward these
+# tests only to the extent it is taxable (Pub. 501, Table 2: "taxable social
+# security benefits"), figured on the dependent's own return (Pub. 915
+# (2025), "Who is taxed").
+
+- name: Case 1, a child's survivor benefits below the filing threshold stay out of household income.
+  period: 2025
+  input:
+    people:
+      parent:
+        age: 40
+        employment_income: 40_000
+      child:
+        age: 12
+        social_security_survivors: 12_000
+    tax_units:
+      tax_unit:
+        members: [parent, child]
+    households:
+      household:
+        members: [parent, child]
+        state_code: TX
+  output:
+    medicaid_person_is_required_to_file: [true, false]
+    adjusted_gross_income: 40_000
+    # Before the fix: 40,000 + 12,000.
+    medicaid_magi: 40_000
+
+- name: Case 2, a child's survivor benefits above the $15,750 standard deduction still stay out, since none is taxable.
+  # Combined income is half of $20,000, less than the $25,000 base amount, so
+  # no benefits are taxable and the child's gross income is zero.
+  period: 2025
+  input:
+    people:
+      parent:
+        age: 40
+        employment_income: 40_000
+      child:
+        age: 12
+        social_security_survivors: 20_000
+    tax_units:
+      tax_unit:
+        members: [parent, child]
+    households:
+      household:
+        members: [parent, child]
+        state_code: TX
+  output:
+    dependent_taxable_social_security: [0, 0]
+    medicaid_irs_gross_income: [40_000, 0]
+    medicaid_person_is_required_to_file: [true, false]
+    medicaid_magi: 40_000
+
+- name: Case 3, a child with survivor benefits and $2,000 of interest must file, so all their benefits count.
+  # Unearned income of $2,000 is more than $1,350. The child's modified AGI is
+  # their $2,000 AGI plus $12,000 of benefits, none of them taxable (combined
+  # income $2,000 + $6,000 is below $25,000).
+  period: 2025
+  input:
+    people:
+      parent:
+        age: 40
+        employment_income: 40_000
+      child:
+        age: 12
+        social_security_survivors: 12_000
+        taxable_interest_income: 2_000
+    tax_units:
+      tax_unit:
+        members: [parent, child]
+    households:
+      household:
+        members: [parent, child]
+        state_code: TX
+  output:
+    medicaid_person_is_required_to_file: [true, true]
+    adjusted_gross_income: 40_000
+    # Before the fix: 52,000, with the benefits but not the interest.
+    medicaid_magi: 54_000
+
+- name: Case 4, a child's tax-exempt interest stays out when the child need not file.
+  # Tax-exempt interest is not gross income, so the child's gross income is
+  # zero.
+  period: 2025
+  input:
+    people:
+      parent:
+        age: 40
+        employment_income: 40_000
+      child:
+        age: 12
+        tax_exempt_interest_income: 20_000
+    tax_units:
+      tax_unit:
+        members: [parent, child]
+    households:
+      household:
+        members: [parent, child]
+        state_code: TX
+  output:
+    medicaid_person_is_required_to_file: [true, false]
+    # Before the fix: 60,000.
+    medicaid_magi: 40_000
+
+- name: Case 5, a child with tax-exempt interest and $2,000 of taxable interest must file, so both count.
+  period: 2025
+  input:
+    people:
+      parent:
+        age: 40
+        employment_income: 40_000
+      child:
+        age: 12
+        tax_exempt_interest_income: 20_000
+        taxable_interest_income: 2_000
+    tax_units:
+      tax_unit:
+        members: [parent, child]
+    households:
+      household:
+        members: [parent, child]
+        state_code: TX
+  output:
+    medicaid_person_is_required_to_file: [true, true]
+    # Form 8962 Worksheet 1-2: AGI 2,000 (line 1) plus tax-exempt interest
+    # 20,000 (line 2). Before the fix: 60,000.
+    medicaid_magi: 62_000
+
+- name: Case 6, a teen whose wages are more than $15,750 must file, so their AGI counts.
+  period: 2025
+  input:
+    people:
+      parent:
+        age: 40
+        employment_income: 40_000
+      teen:
+        age: 17
+        employment_income: 16_000
+    tax_units:
+      tax_unit:
+        members: [parent, teen]
+    households:
+      household:
+        members: [parent, teen]
+        state_code: TX
+  output:
+    medicaid_person_is_required_to_file: [true, true]
+    # Before the fix: 40,000, without the teen's wages.
+    medicaid_magi: 56_000
+
+- name: Case 7, a teen whose wages are $15,750 need not file, so their AGI stays out.
+  period: 2025
+  input:
+    people:
+      parent:
+        age: 40
+        employment_income: 40_000
+      teen:
+        age: 17
+        employment_income: 15_750
+    tax_units:
+      tax_unit:
+        members: [parent, teen]
+    households:
+      household:
+        members: [parent, teen]
+        state_code: TX
+  output:
+    medicaid_person_is_required_to_file: [true, false]
+    medicaid_magi: 40_000
+
+- name: Case 8, taxable benefits put a disabled adult child over the filing threshold, so all their income counts.
+  # The dependent's $15,000 of wages alone is below the gross income limit of
+  # $15,000 + $450. Combined income is $15,000 + $18,000 = $33,000, between
+  # the $25,000 base and $34,000 adjusted base amounts, so the lesser of half
+  # the benefits ($18,000) or half the $8,000 excess, $4,000, is taxable (IRC
+  # 86(a)(1)). Gross income of $19,000 is more than $15,450, and unearned
+  # income of $4,000 is more than $1,350. Modified AGI is $15,000 of wages plus
+  # all $36,000 of benefits.
+  period: 2025
+  input:
+    people:
+      parent:
+        age: 60
+        employment_income: 40_000
+      adult_child:
+        age: 30
+        is_tax_unit_dependent: true
+        is_tax_unit_spouse: false
+        is_disabled: true
+        employment_income: 15_000
+        social_security_dependents: 36_000
+    tax_units:
+      tax_unit:
+        members: [parent, adult_child]
+    households:
+      household:
+        members: [parent, adult_child]
+        state_code: TX
+  output:
+    dependent_taxable_social_security: [0, 4_000]
+    medicaid_irs_gross_income: [40_000, 19_000]
+    medicaid_person_is_required_to_file: [true, true]
+    # Before the fix: 76,000, with the benefits but not the wages.
+    medicaid_magi: 91_000
+
+- name: Case 9, only the dependent who must file adds to household income.
+  period: 2025
+  input:
+    people:
+      parent1:
+        age: 40
+        employment_income: 30_000
+      parent2:
+        age: 40
+        employment_income: 10_000
+        tax_exempt_interest_income: 1_000
+      child1:
+        age: 16
+        employment_income: 20_000
+      child2:
+        age: 10
+        social_security_survivors: 9_000
+        tax_exempt_interest_income: 500
+    tax_units:
+      tax_unit:
+        members: [parent1, parent2, child1, child2]
+    households:
+      household:
+        members: [parent1, parent2, child1, child2]
+        state_code: TX
+  output:
+    # child1's wages are more than $15,750; child2's gross income is zero.
+    # (The filers' values apply the dependents' test and are unused.)
+    medicaid_person_is_required_to_file: [true, false, true, false]
+    adjusted_gross_income: 40_000
+    # The couple's AGI and parent2's tax-exempt interest, plus child1's
+    # $20,000 of wages. Before the fix: 50,500.
+    medicaid_magi: 61_000
+
+- name: Case 10, a dependent's tax-exempt interest is in tax_unit_medicaid_income_level only when they must file.
+  period: 2025
+  absolute_error_margin: 0.001
+  input:
+    people:
+      parent:
+        age: 40
+        employment_income: 40_000
+      child:
+        age: 12
+        tax_exempt_interest_income: 20_000
+    tax_units:
+      tax_unit:
+        members: [parent, child]
+    households:
+      household:
+        members: [parent, child]
+        state_code: TX
+  output:
+    # 40,000 / 21,150, the 2025 poverty guideline for two.
+    tax_unit_medicaid_income_level: 1.891
diff --git a/policyengine_us/tests/policy/baseline/gov/irs/income/taxable_income/adjusted_gross_income/irs_gross_income/social_security/tax_exempt_social_security_person.yaml b/policyengine_us/tests/policy/baseline/gov/irs/income/taxable_income/adjusted_gross_income/irs_gross_income/social_security/tax_exempt_social_security_person.yaml
new file mode 100644
index 00000000000..25fe04a475f
--- /dev/null
+++ b/policyengine_us/tests/policy/baseline/gov/irs/income/taxable_income/adjusted_gross_income/irs_gross_income/social_security/tax_exempt_social_security_person.yaml
@@ -0,0 +1,79 @@
+- name: Case 1, a single filer's benefits below the base amount are all tax-exempt.
+  period: 2025
+  input:
+    social_security_retirement: 20_000
+  output:
+    taxable_social_security: 0
+    tax_exempt_social_security_person: 20_000
+
+- name: Case 2, each spouse keeps their own share of the joint return's tax-exempt benefits.
+  # Combined income is $30,000 of pension plus half of $40,000 of benefits,
+  # $50,000. Over the $44,000 adjusted base amount, the taxable amount is the
+  # lesser of 85% of $40,000 or 85% of the $6,000 excess plus the lesser of
+  # half the $18,000 excess over $32,000 ($9,000) or $6,000: $11,100 (IRC
+  # 86(a)(2)). taxable_social_security splits it by each spouse's benefits,
+  # 30/40 and 10/40.
+  period: 2025
+  input:
+    people:
+      head:
+        age: 70
+        social_security_retirement: 30_000
+        taxable_pension_income: 30_000
+      spouse:
+        age: 68
+        social_security_retirement: 10_000
+    tax_units:
+      tax_unit:
+        members: [head, spouse]
+    marital_units:
+      marital_unit:
+        members: [head, spouse]
+  output:
+    tax_unit_taxable_social_security: 11_100
+    taxable_social_security: [8_325, 2_775]
+    tax_exempt_social_security_person: [21_675, 7_225]
+    filer_tax_exempt_social_security: 28_900
+
+- name: Case 3, a dependent's benefits are the dependent's own, not the filer's.
+  period: 2025
+  input:
+    people:
+      parent:
+        age: 40
+        employment_income: 40_000
+      child:
+        age: 12
+        social_security_survivors: 12_000
+    tax_units:
+      tax_unit:
+        members: [parent, child]
+  output:
+    tax_exempt_social_security_person: [0, 12_000]
+    filer_tax_exempt_social_security: 0
+    tax_exempt_social_security: 12_000
+
+- name: Case 4, a dependent's taxable benefits, figured on their own return, are not tax-exempt.
+  # Combined income is $15,000 of wages plus half of $36,000, $33,000; the
+  # lesser of $18,000 or half the $8,000 excess over $25,000 is taxable.
+  period: 2025
+  input:
+    people:
+      parent:
+        age: 60
+        employment_income: 40_000
+      adult_child:
+        age: 30
+        is_tax_unit_dependent: true
+        is_tax_unit_spouse: false
+        is_disabled: true
+        employment_income: 15_000
+        social_security_dependents: 36_000
+    tax_units:
+      tax_unit:
+        members: [parent, adult_child]
+  output:
+    dependent_taxable_social_security: [0, 4_000]
+    tax_exempt_social_security_person: [0, 32_000]
+    # The tax unit amount subtracts only the filers' taxable benefits.
+    tax_exempt_social_security: 36_000
diff --git a/policyengine_us/variables/gov/hhs/medicaid/income/medicaid_irs_gross_income.py b/policyengine_us/variables/gov/hhs/medicaid/income/medicaid_irs_gross_income.py
index ee69e983556..fc8083d2904 100644
--- a/policyengine_us/variables/gov/hhs/medicaid/income/medicaid_irs_gross_income.py
+++ b/policyengine_us/variables/gov/hhs/medicaid/income/medicaid_irs_gross_income.py
@@ -6,14 +6,31 @@ class medicaid_irs_gross_income(Variable):
     entity = Person
     label = "Gross income used for Medicaid MAGI filing-threshold checks"
     unit = USD
+    documentation = (
+        "The person's own gross income. Social Security counts only to the "
+        "extent section 86 taxes it: taxable_social_security gives the head "
+        "and spouse their shares of their return's taxable benefits, and a "
+        "tax unit dependent's benefits are taxed on the dependent's own "
+        "return (dependent_taxable_social_security)."
+    )
     definition_period = YEAR
     reference = (
         "https://www.law.cornell.edu/uscode/text/26/61",
         "https://www.law.cornell.edu/cfr/text/42/435.603#d_2",
+        # IRS Pub. 501 (2025), Table 2: a dependent's unearned income
+        # includes taxable Social Security benefits.
+        "https://www.irs.gov/pub/irs-prior/p501--2025.pdf#page=4",
+        # IRS Pub. 915 (2025), "Who is taxed": a child's benefits are added
+        # to the child's own income.
+        "https://www.irs.gov/pub/irs-prior/p915--2025.pdf#page=5",
     )
 
     def formula(person, period, parameters):
+        sources = parameters(period).gov.irs.gross_income.sources
         total = 0
-        for source in parameters(period).gov.irs.gross_income.sources:
+        for source in sources:
             total += max_(0, add(person, period, [source]))
+        if "taxable_social_security" in sources:
+            # taxable_social_security is zero for a tax unit dependent.
+            total += person("dependent_taxable_social_security", period)
         return total
diff --git a/policyengine_us/variables/gov/hhs/medicaid/income/medicaid_magi.py b/policyengine_us/variables/gov/hhs/medicaid/income/medicaid_magi.py
index 773fd6318c7..520f3002cb9 100644
--- a/policyengine_us/variables/gov/hhs/medicaid/income/medicaid_magi.py
+++ b/policyengine_us/variables/gov/hhs/medicaid/income/medicaid_magi.py
@@ -1,19 +1,62 @@
 from policyengine_us.model_api import *
 
 
+def magi_household_income(tax_unit, period, parameters, counted_dependents):
+    """The modified AGI of a tax unit's head and spouse plus that of the
+    dependents `counted_dependents` (a person-level mask) selects, before
+    any floor at zero.
+
+    Tax unit AGI already leaves dependents' income out, so each person-level
+    MAGI addition is summed over the head and spouse only, and a counted
+    dependent's whole modified AGI, their own AGI and additions, is added
+    signed, as Form 8962 line 3 combines the two "even if one or both of them
+    are negative".
+    """
+    additions = parameters(period).gov.hhs.medicaid.income.modification
+    filer_magi = tax_unit("adjusted_gross_income", period) + tax_unit_non_dep_add(
+        tax_unit, period, additions
+    )
+    person = tax_unit.members
+    person_level_additions = [
+        addition
+        for addition in additions
+        if tax_unit.entity.get_variable(addition, check_existence=True).entity.is_person
+    ]
+    dependent_magi = person("medicaid_adjusted_gross_income_person", period) + add(
+        person, period, person_level_additions
+    )
+    counted = person("is_tax_unit_dependent", period) & counted_dependents
+    return filer_magi + tax_unit.sum(counted * dependent_magi)
+
+
 class medicaid_magi(Variable):
     value_type = float
     entity = TaxUnit
     label = "Medicaid/CHIP/ACA-related Modified AGI"
     unit = USD
-    documentation = "Medicaid/CHIP/ACA-related modified AGI for this tax unit."
+    documentation = (
+        "Medicaid/CHIP/ACA-related household income for this tax unit: the "
+        "modified AGI of the head and spouse, plus the modified AGI of each "
+        "tax unit dependent who is required to file a return "
+        "(medicaid_person_is_required_to_file), floored at zero. A dependent "
+        "who is not required to file adds nothing, whether or not they file, "
+        "so their tax-exempt interest and Social Security, such as a child's "
+        "survivor benefits, stay out. Social Security counts toward that "
+        "filing requirement only to the extent it is taxable."
+    )
     definition_period = YEAR
     reference = (
         "https://www.law.cornell.edu/uscode/text/42/1396a#e_14_G",  # Medicaid law pointing to IRC
         "https://www.law.cornell.edu/uscode/text/26/36B#d_2",  # IRC defining income
+        "https://www.ecfr.gov/current/title-26/section-1.36B-1#p-1.36B-1(e)(1)",
+        "https://www.ecfr.gov/current/title-42/section-435.603#p-435.603(d)(2)",
+        # Instructions for Form 8962 (2025), Worksheet 1-2 and line 3.
+        "https://www.irs.gov/pub/irs-prior/i8962--2025.pdf#page=8",
     )
 
     def formula(tax_unit, period, parameters):
-        agi = tax_unit("adjusted_gross_income", period)
-        agi_additions = parameters(period).gov.hhs.medicaid.income.modification
-        return max_(0, agi + add(tax_unit, period, agi_additions))
+        required_to_file = tax_unit.members(
+            "medicaid_person_is_required_to_file", period
+        )
+        income = magi_household_income(tax_unit, period, parameters, required_to_file)
+        return max_(0, income)
diff --git a/policyengine_us/variables/gov/hhs/medicaid/income/medicaid_magi_person.py b/policyengine_us/variables/gov/hhs/medicaid/income/medicaid_magi_person.py
index 901c708482e..a6c9bfa93c5 100644
--- a/policyengine_us/variables/gov/hhs/medicaid/income/medicaid_magi_person.py
+++ b/policyengine_us/variables/gov/hhs/medicaid/income/medicaid_magi_person.py
@@ -1,14 +1,19 @@
 from policyengine_us.model_api import *
 
 
-PERSON_LEVEL_MEDICAID_MAGI_ADDITIONS = ["tax_exempt_interest_income"]
-
-
 class medicaid_magi_person(Variable):
     value_type = float
     entity = Person
     label = "Person-level Medicaid MAGI"
     unit = USD
+    documentation = (
+        "Each person's MAGI-based income: their Medicaid AGI plus the MAGI "
+        "additions. A person-level addition, such as tax-exempt interest or "
+        "tax_exempt_social_security_person, is the person's own, so a tax "
+        "unit dependent's Social Security stays in the dependent's amount; "
+        "an addition recorded only for the tax unit is divided between the "
+        "head and spouse."
+    )
     definition_period = YEAR
     reference = (
         "https://www.law.cornell.edu/uscode/text/42/1396a#e_14_G",
@@ -21,7 +26,9 @@ def formula(person, period, parameters):
         person_level_additions = [
             addition
             for addition in additions
-            if addition in PERSON_LEVEL_MEDICAID_MAGI_ADDITIONS
+            if person.entity.get_variable(
+                addition, check_existence=True
+            ).entity.is_person
         ]
         tax_unit_level_additions = [
             addition for addition in additions if addition not in person_level_additions
diff --git a/policyengine_us/variables/gov/irs/income/taxable_income/adjusted_gross_income/irs_gross_income/social_security/tax_exempt_social_security_person.py b/policyengine_us/variables/gov/irs/income/taxable_income/adjusted_gross_income/irs_gross_income/social_security/tax_exempt_social_security_person.py
new file mode 100644
index 00000000000..c28191029f9
--- /dev/null
+++ b/policyengine_us/variables/gov/irs/income/taxable_income/adjusted_gross_income/irs_gross_income/social_security/tax_exempt_social_security_person.py
@@ -0,0 +1,31 @@
+from policyengine_us.model_api import *
+
+
+class tax_exempt_social_security_person(Variable):
+    value_type = float
+    entity = Person
+    label = "Tax-exempt Social Security (person)"
+    unit = USD
+    documentation = (
+        "The person's own Social Security benefits that section 86 leaves out "
+        "of gross income on the return that reports them. For the head and "
+        "spouse, that return is theirs, and taxable_social_security gives "
+        "each their share of its taxable benefits. A tax unit dependent's "
+        "benefits are taxed on the dependent's own return "
+        "(dependent_taxable_social_security), not on the claimant's. Summed "
+        "over the head and spouse, this is filer_tax_exempt_social_security."
+    )
+    definition_period = YEAR
+    reference = (
+        "https://www.law.cornell.edu/uscode/text/26/86",
+        # IRS Pub. 915 (2025), "Who is taxed": one-half of a child's benefits
+        # is added to the child's other income, not the parent's.
+        "https://www.irs.gov/pub/irs-prior/p915--2025.pdf#page=5",
+    )
+
+    def formula(person, period, parameters):
+        social_security = person("social_security", period)
+        # Each is zero for the people the other covers.
+        filer_taxable = person("taxable_social_security", period)
+        dependent_taxable = person("dependent_taxable_social_security", period)
+        return social_security - filer_taxable - dependent_taxable